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Published: May 24, 2011
 / Summer 2011 / Issue 63

 
 

CEO Succession 2010: The Four Types of CEOs

Global Turnover in 2010

This shift in the mix of companies in our global sample is already influencing CEO succession trends, as companies with new governance structures and different growth arcs come to the fore. (See “A Tipping Point for the Global Economy,” by Ivan de Souza and Edward Tse, below.)

For example, one can surmise that the growing presence of Chinese companies in our sample helped bring down the global rate of CEO turnover this year. Because of their high degree of government ownership, China’s biggest companies manifest extremely low CEO turnover — half the global average. In 2010, CEO succession worldwide hit a six-year low of 11.6 percent; Chinese companies’ turnover was only 5.2 percent.

However, the overall drop in turnover in 2010 is not solely China’s doing; in general, there was a sharp reduction in both forced and planned turnover at the top. There are several possible reasons for this. First, the global recession’s lingering effects influenced companies to keep a steady, seasoned hand at the helm. Second, boards have gotten better at selecting CEOs and ensuring their smooth succession. Finally, given the historically high rates of forced turnover in the last few years, there were fewer companies that hadn’t made a recent change in chief executives.

Global Governance Trends

We broke down the data to assess what it means for today’s boards as well as for sitting and aspiring CEOs. Many long-term trends in governance still hold. Boards around the world increasingly separate the roles of chairman and CEO, especially in North America, where only 14 percent of incoming CEOs were assigned both titles in 2010 (versus 52 percent in 2001). Related to this trend is the practice of appointing an outgoing CEO as board chairman, to apprentice the incoming CEO. We continue to see this model growing in prevalence — except in Japan, where it has long been the norm (it accounts for more than two-thirds of successions there).

Another Japanese tradition, appointing insiders, is also becoming a worldwide phenomenon. Among the 291 succession events we assessed in 2010, insiders ascended to the CEO spot 81 percent of the time. Insiders also last longer — in 2010, those insiders leaving office had lasted on average 7.1 years, versus 4.3 years for outsiders. This is not surprising; insiders have historically produced superior returns for their shareholders. Last year was no exception. Insider CEOs leaving office generated total shareholder returns on a regionally adjusted basis of 4.6 percent as compared with 0.1 percent among outsiders.

On average, compared with 10 years ago, CEOs are being appointed at a later age. The average appointment age among outgoing CEOs in 2010 was 52.2, versus 50.2 in 2000. This suggests that boards continue to value experience in selecting a CEO. In tracking outgoing CEOs, we found that the percentage of chief executives who had previously served as CEOs of a public company has risen markedly over the past 11 years, from 4.3 percent in 2000 to 15.2 percent in 2010. And in 2010’s incoming class, more than half (51 percent) of new outsider CEOs came from within the same industry — suggesting that boards are getting more particular about the type of candidates they are seeking.

CEOs are also staying in office for less time, compared with 11 years ago. For outgoing CEOs, the mean tenure was 18 months shorter: 6.6 years in 2010 versus 8.1 in 2000. In particular, the length of planned tenures — in which the CEO departs on a date that has been prearranged with the board — has dropped by 30 percent over the last 11 years, from 10 to seven years. These findings suggest that CEOs are finding the demands of the job more pressing than their predecessors did.

 
 
 
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Resources

  1. Gary Neilson, Etienne Deffarges, Paul Kocourek, and John Elting Treat,  “Putting Headquarters in Its Place: The New, Lean Global Core,” Booz Allen Hamilton white paper, 1999: This and other Booz & Company research covers reorienting your corporate core model.
  2. Ken Favaro, Per-Ola Karlsson, Jon Katzenbach, and Gary L. Neilson, “Lessons from the Trenches for New CEOs: Separating Myths from Game Changers,” Booz & Company white paper, January 2010: The practices that will substantially contribute to success for new CEOs.
  3. Ken Favaro, Per-Ola Karlsson, and Gary L. Neilson, “CEO Succession 2000–2009: A Decade of Convergence and Compression,” s+b, Summer 2010: Last year’s study documented a decade’s worth of CEO succession trends and noted how governance norms are converging and the job of the CEO is compressing, in terms of both tenure and capacity.
  4. Bruce A. Pasternack and Albert J. Viscio, “The Centerless Corporation: A Model for Tomorrow,” s+b, Third Quarter 1998: Introduces and explains the four corporate models.
  5. Inside the Kraft Foods Transformation,” introduced by Chairman and CEO Irene Rosenfeld, s+b, Autumn 2009: Insider’s view of a company moving from an operationally involved to a strategically managed model.
  6. For more on this topic, see the s+b website at: www.strategy-business.com/strategy_and_leadership.
 
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